Netscape Communications Corp., a subsidiary of AOL Time Warner, on Tuesday filed a seven-count lawsuit against Microsoft Corp., seeking redress for Microsoft's anticompetitive conduct against Netscape.

In a prepared statement released on Tuesday, AOL said its case is based on the same anticompetitive conduct that formed the basis of the government's antitrust case against the Redmond, Wash., software company.

Microsoft countered on Tuesday with a stinging attack against AOL Time Warner, accusing it of trying to undermine the proposed antitrust settlement it has reached with the Department of Justice and nine states and of interfering with the environment around the ongoing litigation it faces with the nine dissenting states and the District of Columbia.

The latest suit was filed in the District of Columbia and follows the findings last year by a Federal District Court that Microsoft's behavior violated the antitrust laws and had harmed Netscape. The Court of Appeals then unanimously upheld that finding.

The current lawsuit alleges that, beginning in 1995, Microsoft harmed Netscape in a series of illegal acts aimed at promoting Microsoft's Internet Explorer browser at the expense of Netscape Navigator.

The suit seeks injunctive relief "sufficient to prevent further antitrust injury to Netscape, and an award of treble damages to be determined at trial," said AOL in its statement. AOL acquired Netscape Communications in 1999.

Netscape also seeks equitable relief to eliminate the continuing effects of Microsoft's illegal conduct and to restore competition lost in the operating system market and in the Web browser market because of Microsoft's illegal conduct.

"Indeed, Microsoft's illegal actions and the harms to Netscape are ongoing," the AOL statement said.

"AOL has been using the political and legal systems to compete against Microsoft for years, and this appears to be the next tactic in their litigation plans," Microsoft spokesman Jim Desler said. "But the timing of the matter may be more than coincidental.

"It appears that AOL is using today's filing to undermine the settlement achieved between Microsoft, the Department of Justice and the nine settling states and also to interfere with our ongoing efforts to bring this case to a conclusion," he said.

The Tunney Act process around the proposed settlement was still open for public comment and "there are ways to try and influence things. This is clearly designed to undermine the settlements and change the atmosphere as we approach the remedy hearing in the non-settling states' case," he added.

Microsoft had not been forewarned of the lawsuit and has not yet had the time to fully review it. As such, Desler was unable to comment on the specific allegations in the suit at this time, he said, adding that Microsoft would respond appropriately.

It was also disappointing that AOL continued to try and blame Microsoft for "their own corporate mismanagement of Netscape" and continued to use the courtroom to try and compete with Microsoft rather than the marketplace, Desler said.

AOL spokesman John Buckley dismissed Desler's comments as "pure rhetoric", saying Microsoft had ample warning this suit was coming from the moment the Court of Appeals "found sevennothing against them."

But he acknowledged that the attorneys representing Netscape believed it was better to file a claim in advance of the final remedy phase in the ongoing antitrust litigation against Microsoft so that the scope of the issues as viewed by Netscape could be entered into the court proceedings for the private antitrust claims prior to the remedy phase further narrowing the scope of the government's case.

"From a legal standpoint it would be less smart to wait until the remedy phase was over and go in with a claim as opposed to issuing the claim now and letting the remedy phase wend its way though the court. We wanted to state in advance of that the scope of the claim Netscape needs to make," Buckley told eWeek.

AOL is not going to announce at this time a dollar figure of what the financial loss to Netscape was as a result of Microsoft's anticompetitive conduct or of the exact relief it was seeking. A judge would likely be assigned in the next 30 days and would then determine what the schedule and proceedings would be going forward, Buckley said.

Michael Gartenberg, research director at Jupiter Media Metrix, said in a note late Tuesday that Microsoft's growing market share in the browser space had clearly begun to affect AOL and "this move is the latest in a series to attempt to gain a competitive edge via legal means.

"It's clear that Microsoft's troubles with lawsuits both from the government and from vanquished competitors is far from ended and they will continue to face these types of challenges into the future. AOL is clearly thinking to go beyond the government's proposed compromise with Microsoft and seek damages in a market where Netscape lost a dominant presence to [Microsoft's] Internet Explorer [browser]. AOL's move is likely more competitive in nature than a serious attempt to recover potential revenues lost to Microsoft," Gartenberg said.

The claims against Microsoft filed by the Department of Justice drew substantial support from the unanimous ruling of the Court of Appeals. In affirming that Microsoft had violated Section 2 of the Sherman Act, the Court of Appeals stated that "Microsoft undertook a number of anticompetitive actions that seriously reduced the distribution of Navigator."

"The Court of Appeals further stated these actions 'have a significant effect in preserving [Microsoft's] monopoly; they help keep usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft's monopoly,'" AOL said in its statement.

The lawsuit alleges that Microsoft's illegal actions resulted in harm to competition, and antitrust injury to Netscape in particular.

In the suit AOL said Netscape was seriously damaged by Microsoft's illegal conduct in at least the following ways: it lost browser licensing revenues; it lost browser market share that would have led to other significant sources of revenues, including portal revenues and revenues from its enterprise software and products businesses; its marketing and distribution costs were significantly increased; it lost goodwill and going concern value; and it lost the profits that would have existed if Microsoft had not acted illegally to prevent Netscape's browser technology from providing a competitive alternative to Microsoft's monopoly operating system as a development platform."

Randall J. Boe, AOL's General Counsel, said in a prepared statement that the "Netscape's lawsuit is a logical extension of the findings entered by the District Court and unanimously affirmed by the Court of Appeals that Microsoft thwarted competition, violated the antitrust laws and illegally preserved its monopoly at Netscape's expense.

"There is no question that Microsoft's conduct violated the law and harmed competition and consumers. Netscape's lawsuit seeks not only an award of damages, but for the Court to provide injunctive relief that will help restore competition on the computer desktop. We support the efforts and goals of the non-settling state attorneys general who continue to seek appropriate remedies to end Microsoft's anticompetitive conduct and illegal activities. The aims of Netscape's lawsuit are entirely consistent with their efforts," he said.

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About the Author

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.
He was also Group Financial Communications Manager for First National Bank, the second large... See Full Bio

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